Professional Liability Insurance

The starting date of your continuous coverage is called the retroactive date which is the earliest date an event would be covered. Usually, this is the date you first started your E&O policy. However, should you lapse your policy for any period of time, and then start another policy at a later date, your retroactive date is reset to the date the new policy started. So, if you let your E&O policy lapse, you will not be covered for claims that occurred prior to your new retroactive date, even though you had insurance at that time.

As an example, suppose you had an E&O policy in force for 5 years. In your 6th year, you let your policy lapse due to financial reasons. Sometime after that, your policy is reinsated. In your 7th year, you receive a letter from an attorney representing a former client. Apparently, the former client is unhappy with some work you did 4 years ago and is suing you for $100,000. You submit the claim to your insurance company and are shocked to hear that the claim is being denied, even though you had insurance at the time you did the work for the client. Due to the lapse in your policy and subsequent re-instatement, your retroactive date is now the date of the re-instatement and not the date your first policy started 7 years ago. As a result, you may be personally liable for the suit of $100,000 plus defence costs.

Set up a renewal reminder notice using your calendar or contact management system. You should allow sufficient time (1 to 2 months) to budget for the premium or allow your broker to shop for a better rate.